Market Update November 30th

The markets were a bastion of uncertainty all day. A look at the intraday chart shows before the open positive momentum… opened positive and then sold into negative territory only to rally during the last half hour of trading. The data was mixed with the PCE okay, Chicago PMI better, and Pending Home Sales ugly. The data did lend itself to pushing interest rates higher on the day, not helping stocks. The dollar responded positively as well. All things considered no real answers on direction for the markets on Thursday. All the data points are now referenced and compared to the belief of investors that the Fed will cut rates to restart the economy in the first part of next year. Anything opposed to that belief isn’t good for the current move-up. Mega caps were a drag on the markets again… they did manage to bounce in the last half hour of trading. Consolidation of the last four weeks has been the theme all week. Maybe Friday will show some clarity. Details on Black Friday sales are emerging as Bloomberg and other analysts dig through the data showing that Amazon garnered the most sales. The major retailers, who depend on the holiday season for sales saw an average decline of 4% from 2022. Discounters received more sales as the consumer remained strained by inflation. The question is what happens over the next 25+ days of shopping? The Fed was out again as noted, and the comments were more towards the slowing economic picture as a result of inflation… they have been discussing a weaker economic picture more of late… worthy of attention as it could be the move towards being done with rate hikes if, only if, inflation shows signs of slowing the coming months. The charts are still looking extended near term and they show consolidation patterns near the highs. There is some juggling for leadership and we will watch how this unfolds. Watching for another leg to the upside before this is over. Patience is a must.

The volume was above average as volatility picked up. Some charts are in consolidation patterns while others continue to inch higher. Four weeks of higher moves for the market but this week has not offered any clarity on direction near term. Some believe the consolidation is the test of the move higher. That may be, but we will look to the charts for answers going forward as we adjust our stops to account for unseen risks. Any selling would relate to profit-taking based on the activity. Earnings continue to be good and bad, but the focus is on the Fed not the economy or earnings… reality always finds a way of showing up on the charts eventually. Money has been chasing the belief the Fed is done with interest rates despite all the FOMC member’s comments. We now enter a new phase of what investors believe to be true… The Fed will cut rates to generate a stimulus to reset the economy on a growth track, but several Fed officials have said 2nd half of 2024 at best… not what the markets believe… thus, the battle for stocks. If this belief is true it will take several quarters of data before it is seen in the data to convince the Fed. The S&P 500 index closed up 0.3%. The NASDAQ was down 0.2%. The SOXX was down 0.7%. Small Caps (Russell 2000) were up 0.3%. The ten-year treasury yield was 4.35% up 8 bps for the day. Crude (USO) was down 3.2%. (UGA) was down 4.6%. Natural gas (UNG) was up 0.1%. The dollar was up 0.7%. We are focused on managing the risk in the current environment.

Charts to Watch: See Notes on “Reality of the Markets” & “Jim’s Beliefs About the Market” pages…

Quote of the Day: “My fake plants died because I did not pretend to water them.” — Mitch Hedberg.

Additional Charts To Watch

1) IWM moved up to the 200-day MA and tested closing on a tombstone doji candle. watching for a test to the $174.40 level and a move higher. Entry on the test. Got the test… looking for a bounce and entry point moving through resistance.

2) IYT moved above the 200-day MA and a tombstone doji candle on Wednesday… test and go is the belief… Entry on the test. Working, moved above the $244.50 mark on Thursday.

Sector Rotation And The S&P 500 Index

The S&P 500 index closed up 17 points to 4567 moving the index up 0.38% with above-average volume on the move. The index moved above resistance at the 4386 level and the October high. The next hurdle is the August highs. Ten of the eleven sectors closed higher on the day with healthcare s as the leader up 1.2%. The worst performer of the day was consumer discretionary down 0.1%. The VIX index closed at 12.9 flat on the day. Plenty to ponder between the headlines and facts. The index moves to the next resistance level and either it tests or moves higher… letting it unfold.

XLB – Basic Materials Cleared $77 and $79.50 resistance and moving toward the August highs. The sector was up 1.2% for the week. No Positions. Inching higher.

XLU – Utilities moved back above the $60.15 mark, need to clear $62.90. The sector was up 0.9% for the week. Entry $60.15. Stop 60.15. Moved slightly above resistance needs to follow through.

IYZ – Telecom Moved back above the $21.30 level. The sector was up 1.5% for the week. No Positions. Attempting to the move higher.

XLP – Consumer Staples Tested the move above resistance at $69.30. The sector was up 1.1% for the week. No Positions.

XLI – Industrials Cleared resistance to inch higher. The sector was up 1.3% for the week. No Positions. Added a move upside…

XLV – Healthcare Made the move above $129 and to the October highs. The sector was up 2% for the week. No Positions. Entry $129. Stop $129. Moved back to resistance.

XLE – Energy holding near $84.33 support and held above $82… watching how this plays out near term with a downside bias in play for crude. The sector was up 2.3% for the week.

XLK – Technology Reestablished the longer-term uptrend line with some topping on the chart. Taking a rest or ready for a test? The sector was up 0.6% for the week. Entry XLK $166. Stop $178.50.

XLF – Financials Continued the move higher as interest rates dipped lower. At the July highs currently and extended on the chart. The sector was up 1.5% for the week. Moved higher clearing the July highs.

XLY – Consumer Discretionary consolidating near $168 and holding. Retail data was very mixed on earnings with plenty of warnings about the state of the consumer. The upside remains in play. The sector was up 1.3% for the week. No Positions.

IYR – REITs Moved to resistance at the $83 level and watching. The sector was up 0.8% for the week. No Positions. Moved over $83 resistance… need to follow through.

Summary: The investor has been buying into the rhetoric of the Fed being done… all is well scenario being played out in the media. Four weeks of moves to the upside validate that belief, but there is some testing/consolidation taking place currently. The index moved above the 4500 level led by large-cap stocks. Extended upside… consolidation without a real test thus far. The focus is on the holiday shopping season and thus far not impressive… expected sales are similar to ten years ago… the media wants us to believe that holiday shopping is picking up due to sales of up to 60% off! Sounds like a commercial. We will see how all the banter unfolds. Remember two things; first, the trend is your friend, and second, don’t fight the Fed.

(The notes above are posted at the end of each week based on activity from the previous week’s trading. The BOLD/ITALIC comments are the current-day changes worthy of note.)

Key Indicators/Sectors & Leaders To Watch

The NASDAQ index closed down 32 points to 14,226 as the index was down 0.23% for the day. The index held near the July highs. The leaders remain the semiconductor and software stocks. The 14,040 level cleared as investors put money to work. The index is up 13.1% from the October lows. Manage your risk accordingly.

NASDAQ 100 (QQQ) was down 0.1% for the day as the mega-caps were flat on the day. The sector broke above the July highs to lead the markets. A small test as the sector remains the leader in the overall market. Adjust stops and let it play out. Entry $354.20. Stop $383. Tested lower intraday…

Semiconductors (SOXX) The sector moved above the August highs with a rounding top on the chart. The sector was up 0.6% for the week. SOXL entry $448. Stop $507. Attempted to move higher…

Software (IGV) Remains one of the leading sectors with a solid uptrend in place. The sector was up 2.1% for the week. IGV $336. Stop $373 (adjusted). Solid gap higher.

Biotech (IBB) more consolidation for the sector hovering around the $119 level. The sector was up 1.9% for the week. No Positions. Making attempt to move higher.

Small-Cap Index (IWM) consolidating near the 200-day MA. The sector was up 1.9% for the week. No Position. Made an upside move and needs to follow through.

Transports (IYT) bottom reversal bounce… cleared resistance and reversed the downtrend. plodding higher. The sector was up 2.2% for the week. No positions.

The Dollar (UUP) The dollar remains challenged by the belief the Fed will cut rates. Broke support short term. The dollar was down 0.8% for the week. Short side in play UDN. Solid bounce on Thursday’s economic data.

Treasury Yield 10-Year Bond (TNX) The yield closed the week at 4.47% up from 4.44% last week. TLT was up 0.2% for the week. Watching how the Fed manages the issues with banks and treasury auctions. 4.35% as rates bounce on economic data.

Crude oil (USO) Crude is very mixed with supply data showing big builds in inventory in the last two weeks. OPEC delayed a meeting on production cuts adding to the downside risk. USO was up 4% for the week. Bouncing back from last week’s sell-off. Took the bounce trade on Friday… Entry $69.57. Stop $68.57. $73.25 level attempted to clear reversed back to support.

Gold (GLD) The commodity moved to the October highs on a lower dollar. $183.72 resistance was cleared. The metal was up 1% for the week. Entry $182.57. Stop $182. Nice break higher. Dollar bounced testing the move.

FINAL NOTES

Our longer-term view shifts as the indexes confirm the bottom reversal with them looking at the July and August highs currently… if those levels are cleared it may resume the long-term uptrend. The bounce in the SP 500 cleared 4500 and looking at the July highs. There has been some consolidation in the last four trading days to digest the upside move. The short-term upside move in the last four weeks is good but there is still work to be done from a longer-term perspective and a resumption of the long-term trendline. The activity for the week was led by the laggards playing catch up. Nothing, as we all know, goes straight down or up… there are always positive and negative swings in a longer-term trend. A look at the daily chart from the October 20022 lows validates exactly that premise with plenty of volatility along the way. With the October trend broken and the short-term downtrend broken from the July highs… the market’s short-term is in a positive phase… the long-term trend, however, remains neutral. The current bounce is challenged by uncertainty in the economy and geopolitics. Time will tell how this plays out. Current activity raises questions relative to direction and growth as it relates to earnings growth. We look to charts and fundamentals for some answers. The key remains, know where you are now, know what is happening now, and know what is on the horizon… act accordingly. The goal is to manage the risk of positions, take what is offered… short or long, and then manage your money. Listen to the market not the talking heads.

Thursday: Lack of clarity created some intraday volatility resulting in above-average volume. As we push to the end of November and start the final trading month of the year, plenty to consider as we manage the current risk. Economic data was mixed and PCE pushed the dollar higher along with interest rates. Earnings again are mixed. The retail outlook for the holidays is not great with plenty of comments relative to the consumer. Watching how the current consolidation unfolds… the breadth of the move is not great, but taking what is offered. The reality is the move is predicated on the Fed being done with rate hikes… if it doesn’t materialize we will turn to reality… a weak economic picture. We will follow the charts and manage the risk while waiting for the facts to confirm the belief over time. There is no lack of issues on the table with each taking their respective turn in the spotlight. The leadership remains narrow with some sectors attempting to join the party like small caps… Economic data is confirming the ugly outlook. I would expect the data to remain negative with the only real caveat being how negative it will be. We have put money to work short term based on the technical moves, and we continue to manage risk with stops and profit-taking where appropriate, as we take what the markets give. One day at a time is all I am willing to deal with as the trends build and the facts validate. Leaders continue to lead XLK, QQQ, SOXX, IGV watching for the next leg higher.

Today: GLD, SLV, DLTR, AAPL, USO, UNG

Decide what you’re doing before the market opens based on your beliefs. Entry. Exit. Target. Define the risk of the position. Nothing more… Nothing less.

“Vision without action is a daydream… Action without vision is a nightmare.” Japanese proverb

The goal of these notes is to allow you, the investor, to learn how to see the market development as the progression through the sector develops based on news, speculation, and data. Data drives long-term results and develops trends… speculation and news are short-term drivers and offer higher risk trading opportunities. Through the use of both technical and fundamental data, we can have greater confidence in our trading strategies with a disciplined approach to investing and managing the risk of our money.

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